1
00:00:00,080 --> 00:00:02,600
Speaker 1: And good morning to all of our Bloomberg television and

2
00:00:02,720 --> 00:00:05,760
Speaker 1: radio audience around the world. I'm Michael McKee. Joining me

3
00:00:05,800 --> 00:00:08,760
Speaker 1: now Austin Goolsby. He is the president of the Chicago

4
00:00:08,880 --> 00:00:11,080
Speaker 1: Federal Reserve Bank, and we can get his reaction to

5
00:00:11,320 --> 00:00:13,680
Speaker 1: an awful lot of news in the last seventy two

6
00:00:13,720 --> 00:00:17,640
Speaker 1: to forty eight hours. First, let's dive right into it

7
00:00:17,680 --> 00:00:21,200
Speaker 1: with last night's up here. It's Cher Powell suggested again

8
00:00:21,840 --> 00:00:24,960
Speaker 1: that March would be too early to cut rates. You

9
00:00:25,000 --> 00:00:28,680
Speaker 1: wouldn't have enough data to justify that at the time.

10
00:00:29,000 --> 00:00:31,040
Speaker 2: Do you agree with him?

11
00:00:31,560 --> 00:00:34,440
Speaker 3: Well, Michael, you know my thing is I never like

12
00:00:34,640 --> 00:00:38,080
Speaker 3: tie in our hands ahead of meetings. When you got

13
00:00:38,080 --> 00:00:41,360
Speaker 3: weeks of data coming through, it feels like the economy's

14
00:00:41,400 --> 00:00:44,360
Speaker 3: been quite strong on the growth front. You got big

15
00:00:44,479 --> 00:00:47,599
Speaker 3: jobs numbers, you got big GDP numbers, better than expected.

16
00:00:48,200 --> 00:00:50,839
Speaker 3: But at the same time, we've had inflation better than

17
00:00:50,880 --> 00:00:52,000
Speaker 3: expected too.

18
00:00:52,080 --> 00:00:53,000
Speaker 4: If you look over the.

19
00:00:53,000 --> 00:00:56,520
Speaker 3: Last seven months, we've had seven months of really quite

20
00:00:56,680 --> 00:01:02,760
Speaker 3: good inflation reports round or even below the Fed's target.

21
00:01:03,160 --> 00:01:06,720
Speaker 3: So if we just keep getting more data like what

22
00:01:06,760 --> 00:01:10,960
Speaker 3: we have gotten, we're well on the I believe that

23
00:01:11,040 --> 00:01:14,880
Speaker 3: we should well be on the path to normalization.

24
00:01:15,520 --> 00:01:18,319
Speaker 1: Well, understand you don't want to tie yourself down, but

25
00:01:18,440 --> 00:01:20,199
Speaker 1: is there really much of a chance of a march

26
00:01:20,280 --> 00:01:23,400
Speaker 1: move The markets think now eighteen percent, and some people

27
00:01:23,400 --> 00:01:26,000
Speaker 1: think that's even high.

28
00:01:26,080 --> 00:01:29,720
Speaker 3: Well, look, Michael, as I say, all we need to

29
00:01:29,760 --> 00:01:33,959
Speaker 3: do is keep getting information like what we've been getting

30
00:01:34,000 --> 00:01:37,600
Speaker 3: for the last seven months, where inflation on a flow

31
00:01:37,640 --> 00:01:42,040
Speaker 3: basis is absolutely under control and is in the range

32
00:01:42,200 --> 00:01:48,280
Speaker 3: of our FED target. And if we keep getting strong

33
00:01:48,960 --> 00:01:53,200
Speaker 3: quantity numbers, that is to say, jobs numbers, GDP numbers,

34
00:01:53,240 --> 00:01:58,080
Speaker 3: growth numbers, while inflation goes down. In the conventional view,

35
00:01:58,120 --> 00:02:02,240
Speaker 3: that's not really supposed to happen. So that would we'd

36
00:02:02,280 --> 00:02:06,360
Speaker 3: have to be entertaining the possibility that we're entering a

37
00:02:06,400 --> 00:02:09,320
Speaker 3: period like the mid to late nineties where you had

38
00:02:09,320 --> 00:02:15,200
Speaker 3: productivity growth faster than expected, faster than trend, and that

39
00:02:15,400 --> 00:02:17,200
Speaker 3: opens up some new possibilities.

40
00:02:17,760 --> 00:02:21,000
Speaker 1: Scott Pelly of CBS last night said that Powell suggested

41
00:02:21,520 --> 00:02:25,080
Speaker 1: that rate cuts would likely be a quarter, maybe a

42
00:02:25,280 --> 00:02:28,000
Speaker 1: half of a percentage point at a time. That doesn't

43
00:02:28,040 --> 00:02:30,800
Speaker 1: appear in the transcript. Was a half percentage point cut

44
00:02:30,840 --> 00:02:31,880
Speaker 1: discussed at the meeting.

45
00:02:35,520 --> 00:02:39,400
Speaker 3: As you know, we don't report on what's discussed at

46
00:02:39,440 --> 00:02:44,919
Speaker 3: the meeting until the transcript comes out. Our standard way

47
00:02:44,960 --> 00:02:49,080
Speaker 3: to think of it from the FOMC is somewhat like

48
00:02:49,200 --> 00:02:53,840
Speaker 3: what's in the Summary of Economic Projections, the SEP, which

49
00:02:53,880 --> 00:02:56,600
Speaker 3: comes out every quarter, and the last time that came

50
00:02:56,639 --> 00:02:59,680
Speaker 3: out in December, you saw that the median member of

51
00:02:59,720 --> 00:03:02,920
Speaker 3: the f S thought there would be three rate cuts

52
00:03:03,120 --> 00:03:06,519
Speaker 3: i e. Seventy five basis points for the year twenty

53
00:03:06,639 --> 00:03:07,200
Speaker 3: twenty four.

54
00:03:08,080 --> 00:03:10,520
Speaker 1: Is there a situation other than perhaps a recession or

55
00:03:10,520 --> 00:03:13,600
Speaker 1: some sort of market failure where you would consider a

56
00:03:13,639 --> 00:03:14,880
Speaker 1: fifty basis point cut.

57
00:03:16,760 --> 00:03:22,040
Speaker 3: Well, look, I just think we you get the data

58
00:03:22,360 --> 00:03:27,880
Speaker 3: and you respond to the data in its totality, so

59
00:03:29,200 --> 00:03:32,600
Speaker 3: it's I don't think it makes sense to speculate about

60
00:03:32,840 --> 00:03:35,880
Speaker 3: hypotheticals of what would happen to make the rate cuts

61
00:03:35,920 --> 00:03:38,400
Speaker 3: be different than what they have been in the past.

62
00:03:38,800 --> 00:03:42,440
Speaker 1: Three percent growth, three point seven percent unemployment, two point

63
00:03:42,560 --> 00:03:47,440
Speaker 1: nine percent PCE inflation, the FED discussing rate cuts.

64
00:03:47,600 --> 00:03:49,520
Speaker 2: Is this a soft landing?

65
00:03:49,600 --> 00:03:52,960
Speaker 1: Can you declare victory?

66
00:03:53,320 --> 00:03:57,560
Speaker 3: I mean twenty twenty three by the measures of the

67
00:03:57,640 --> 00:04:02,680
Speaker 3: dual mandate, which is to say, maximum employment and stabilized prices,

68
00:04:02,960 --> 00:04:05,600
Speaker 3: that was a pretty good year for twenty twenty three

69
00:04:05,680 --> 00:04:08,560
Speaker 3: one of the better dual mandate years that we've seen

70
00:04:08,640 --> 00:04:09,400
Speaker 3: in some time.

71
00:04:10,560 --> 00:04:12,160
Speaker 4: You never want to declare victory.

72
00:04:12,200 --> 00:04:15,800
Speaker 3: The central banker's job is to remain paranoid about everything

73
00:04:15,880 --> 00:04:18,280
Speaker 3: because there are external shocks. There are a whole lot

74
00:04:18,320 --> 00:04:21,560
Speaker 3: of things that can go wrong. But we definitely made

75
00:04:21,600 --> 00:04:24,839
Speaker 3: progress on the side of the mandate where we had

76
00:04:24,920 --> 00:04:28,040
Speaker 3: been failing. You know, the inflation rate was way higher

77
00:04:28,080 --> 00:04:31,560
Speaker 3: than where we wanted it to be. And as I say,

78
00:04:31,600 --> 00:04:35,080
Speaker 3: for the last seven months we've been at or below

79
00:04:35,600 --> 00:04:37,560
Speaker 3: the two percent annualized rate.

80
00:04:37,680 --> 00:04:39,520
Speaker 4: So we just need more months like that.

81
00:04:40,360 --> 00:04:42,279
Speaker 2: That's in the PCE index.

82
00:04:42,680 --> 00:04:47,240
Speaker 1: But CPI, especially core CPI, the Cleveland and Dallas Fed's

83
00:04:47,279 --> 00:04:52,479
Speaker 1: trimmed means, the Atlanta Fed's sticky wage price index have

84
00:04:52,560 --> 00:04:56,080
Speaker 1: all been running faster and hotter than PCE. Is there

85
00:04:56,080 --> 00:04:59,200
Speaker 1: an underlying inflation issue that maybe your measure is not

86
00:04:59,240 --> 00:04:59,760
Speaker 1: picking up?

87
00:05:01,880 --> 00:05:03,240
Speaker 4: No, I don't think so.

88
00:05:04,120 --> 00:05:07,240
Speaker 3: There if we get down into the weeds, the different

89
00:05:07,279 --> 00:05:11,480
Speaker 3: measures of inflation measure different things, and so categories like

90
00:05:11,839 --> 00:05:17,279
Speaker 3: health insurance are better tracked in the PCE measure of

91
00:05:17,279 --> 00:05:20,880
Speaker 3: inflation than they are in the CPI, and the PCE

92
00:05:21,320 --> 00:05:25,719
Speaker 3: measure allows consumers to adjust to the prices and change

93
00:05:25,760 --> 00:05:30,000
Speaker 3: their mix of what they're buying. That's why the FED

94
00:05:30,040 --> 00:05:33,360
Speaker 3: has chosen the PCE as where they want.

95
00:05:33,160 --> 00:05:35,320
Speaker 4: To get to two percent.

96
00:05:36,760 --> 00:05:38,880
Speaker 3: The only thing I would like to emphasize is the

97
00:05:38,920 --> 00:05:43,360
Speaker 3: Fed's goal is not two percent inflation on a Cleveland

98
00:05:43,440 --> 00:05:47,640
Speaker 3: trimmed means CPI or something like that. They make clear

99
00:05:48,000 --> 00:05:51,040
Speaker 3: PCE is the measure that we're trying to hit two percent,

100
00:05:51,200 --> 00:05:54,960
Speaker 3: and in CPI equivalent, that's it's going to be a

101
00:05:55,040 --> 00:05:58,120
Speaker 3: little bit higher as a run rate on that measure.

102
00:05:58,839 --> 00:06:00,680
Speaker 1: Now that you've had time to think about it, what

103
00:06:00,720 --> 00:06:03,560
Speaker 1: do you make of the acceleration in hiring over the

104
00:06:03,600 --> 00:06:06,840
Speaker 1: past two months. Optimists say it shows the economy is

105
00:06:06,960 --> 00:06:09,359
Speaker 1: very strong and maybe the FED doesn't have pressure to

106
00:06:09,400 --> 00:06:12,880
Speaker 1: cut rates, and pessimists say, can't be right. Seasonal adjustment

107
00:06:12,880 --> 00:06:14,640
Speaker 1: factors have fudged the numbers.

108
00:06:16,360 --> 00:06:20,240
Speaker 3: Well, it's this very important category. They did not fudge

109
00:06:20,279 --> 00:06:21,400
Speaker 3: the numbers. That's crazy.

110
00:06:21,480 --> 00:06:24,120
Speaker 4: But the thing that I.

111
00:06:24,200 --> 00:06:28,320
Speaker 3: Want to emphasize when you see big prints like the

112
00:06:28,320 --> 00:06:31,840
Speaker 3: ones that we saw on Friday, with big positive jobs numbers,

113
00:06:32,120 --> 00:06:37,000
Speaker 3: there is a tendency, if from pre COVID times to say, ooh,

114
00:06:37,120 --> 00:06:40,560
Speaker 3: that must mean the economy is overheating. And I just

115
00:06:40,600 --> 00:06:45,000
Speaker 3: want to make clear, and periods of positive supply shocks

116
00:06:45,680 --> 00:06:49,840
Speaker 3: or improving productivity that's better than you expected. You cannot

117
00:06:49,920 --> 00:06:54,680
Speaker 3: look at the quantities and determine whether the economy is overheated,

118
00:06:54,960 --> 00:07:00,280
Speaker 3: because the same thing that's inflating the quantities is alsoinging

119
00:07:00,320 --> 00:07:05,960
Speaker 3: down the inflation, so you can it affords new possibilities

120
00:07:06,200 --> 00:07:10,280
Speaker 3: for monetary policy that are more positive than in a

121
00:07:10,360 --> 00:07:14,000
Speaker 3: normal demand driven frame, and we saw that in the

122
00:07:14,040 --> 00:07:17,520
Speaker 3: mid to late nineties, and so we've just got to

123
00:07:17,560 --> 00:07:21,320
Speaker 3: be mindful in seeing these big strong jobs numbers and

124
00:07:21,440 --> 00:07:24,800
Speaker 3: big GDP numbers that they do not have to mean

125
00:07:25,280 --> 00:07:27,240
Speaker 3: overheating in the traditional sense.

126
00:07:27,680 --> 00:07:30,120
Speaker 4: If the supply side is moving around.

127
00:07:30,600 --> 00:07:32,280
Speaker 1: The EU curve, and you can pick any of them

128
00:07:32,440 --> 00:07:37,520
Speaker 1: still inverted, started flattening, but then has now started inverting

129
00:07:37,680 --> 00:07:40,480
Speaker 1: more Again, does that tell you anything.

130
00:07:40,240 --> 00:07:41,360
Speaker 2: About the economy?

131
00:07:41,840 --> 00:07:45,720
Speaker 1: Supposedly it signals a recession within six to twelve months,

132
00:07:45,800 --> 00:07:49,800
Speaker 1: but it's been fourteen months now and so far no recession.

133
00:07:51,720 --> 00:07:51,920
Speaker 4: Yeah.

134
00:07:52,040 --> 00:07:55,920
Speaker 3: Look, the thing about the inverted Eel curve is a

135
00:07:56,000 --> 00:08:00,840
Speaker 3: great predictor of recession. When recessions are caused by the

136
00:08:00,920 --> 00:08:06,280
Speaker 3: normal demand flows of aggregate demand. But all bets are

137
00:08:06,320 --> 00:08:10,119
Speaker 3: off when the supply side starts going bonkers. And we've

138
00:08:10,160 --> 00:08:14,440
Speaker 3: seen that going through COVID. And now as we unwind

139
00:08:14,600 --> 00:08:20,559
Speaker 3: those deteriorated supply chain, we're getting labor force participation back

140
00:08:20,680 --> 00:08:26,840
Speaker 3: up to healthy levels. You can get these inverted yield curves,

141
00:08:26,880 --> 00:08:29,280
Speaker 3: I think just from the anticipation of.

142
00:08:31,000 --> 00:08:32,959
Speaker 4: What folks think the FED is going to do.

143
00:08:33,679 --> 00:08:40,000
Speaker 3: If the FED is cutting rates not because of demand shocks,

144
00:08:40,559 --> 00:08:42,760
Speaker 3: which is what happens in the normal times, then the

145
00:08:42,960 --> 00:08:46,240
Speaker 3: inverted yield curve doesn't need to be an indicator of recession.

146
00:08:46,520 --> 00:08:49,600
Speaker 4: I realized there were too many no's in that sentence.

147
00:08:51,080 --> 00:08:54,640
Speaker 3: I don't think that the inverted yield curve as a

148
00:08:54,760 --> 00:08:59,800
Speaker 3: rule of thumb, is really as applicable as a recession.

149
00:09:01,000 --> 00:09:05,120
Speaker 3: And you certainly saw that in twenty twenty three. Everyone

150
00:09:05,640 --> 00:09:08,240
Speaker 3: was saying that it was very likely to be a recession,

151
00:09:08,280 --> 00:09:10,760
Speaker 3: and it was nothing even remotely like a recession.

152
00:09:10,960 --> 00:09:15,760
Speaker 1: NYCB Bank New York Community Bank, revived fears of regional

153
00:09:15,800 --> 00:09:19,559
Speaker 1: bank issues last week. What are bankers in your district

154
00:09:19,600 --> 00:09:23,440
Speaker 1: telling you about their situation? Is NYCB a one off

155
00:09:23,520 --> 00:09:24,600
Speaker 1: or is it a canary?

156
00:09:26,600 --> 00:09:27,800
Speaker 4: Well?

157
00:09:27,840 --> 00:09:31,080
Speaker 3: I would paid close attention to that, of course, because

158
00:09:31,400 --> 00:09:36,680
Speaker 3: the Chicago FEDS that has the largest number of banks

159
00:09:36,760 --> 00:09:40,280
Speaker 3: that and financial institutions that we supervise, I believe, of

160
00:09:40,440 --> 00:09:44,560
Speaker 3: all the FED districts. The thing is, in this case,

161
00:09:45,160 --> 00:09:50,520
Speaker 3: the bank had bought the assets of signature, and that

162
00:09:50,640 --> 00:09:54,120
Speaker 3: moved them up into a higher category where there's a

163
00:09:54,240 --> 00:09:59,120
Speaker 3: little more scrutiny and some higher capital requirements. So thus

164
00:09:59,280 --> 00:10:04,120
Speaker 3: far that doesn't really seem like it's a commercial real

165
00:10:04,240 --> 00:10:06,559
Speaker 3: estate blowing up or something like that.

166
00:10:06,640 --> 00:10:08,800
Speaker 4: But of course we're monitoring.

167
00:10:09,120 --> 00:10:12,559
Speaker 3: As I say, this job of central banker is to

168
00:10:12,720 --> 00:10:15,880
Speaker 3: monitor everything that can go wrong and to prepare yourself

169
00:10:15,920 --> 00:10:16,200
Speaker 3: for it.

170
00:10:17,240 --> 00:10:21,280
Speaker 1: Well, one more question about preparing yourself. What are the

171
00:10:21,320 --> 00:10:25,280
Speaker 1: bankers telling you about lending at this point with real

172
00:10:25,360 --> 00:10:26,600
Speaker 1: rates going up, et cetera.

173
00:10:26,720 --> 00:10:27,920
Speaker 2: Are they tightening credit?

174
00:10:28,320 --> 00:10:32,400
Speaker 1: Are they tightening credit standards, making fewer loans, making more loans?

175
00:10:32,400 --> 00:10:34,920
Speaker 1: We get the Senior Loan Officer Survey this week.

176
00:10:34,960 --> 00:10:35,880
Speaker 2: What are we going to see?

177
00:10:37,720 --> 00:10:42,240
Speaker 3: Yeah, the Beige Book comes out every FMC meeting where

178
00:10:42,240 --> 00:10:45,480
Speaker 3: we talk to contacts, We talk to each of our

179
00:10:45,600 --> 00:10:49,840
Speaker 3: reserve banks, talk to our own board of directors, as

180
00:10:49,880 --> 00:10:53,920
Speaker 3: well as people out in the community. Over the last

181
00:10:54,720 --> 00:10:58,760
Speaker 3: year year and a half, you've seen a decidedly tighter

182
00:10:58,880 --> 00:11:03,240
Speaker 3: credit market, for sure, mostly I think just because the

183
00:11:03,320 --> 00:11:07,439
Speaker 3: rates are higher. We had a fear in the spring

184
00:11:07,640 --> 00:11:12,080
Speaker 3: last year with the collapse of Silicon Valley Bank and

185
00:11:12,120 --> 00:11:14,920
Speaker 3: a few others, that it would lead to a credit crunch.

186
00:11:15,160 --> 00:11:20,520
Speaker 3: We mostly haven't seen more credit tightening than what you

187
00:11:20,559 --> 00:11:23,760
Speaker 3: would expect just from the monetary policy and the rates

188
00:11:24,080 --> 00:11:28,120
Speaker 3: I would characterize. And that still feels like more of

189
00:11:28,160 --> 00:11:32,320
Speaker 3: the same. And now you've had the long rates, which

190
00:11:32,360 --> 00:11:34,400
Speaker 3: the Fed does not directly control.

191
00:11:35,360 --> 00:11:36,680
Speaker 4: They've been on a journey.

192
00:11:36,800 --> 00:11:39,760
Speaker 3: You know, they were up, then they're down, and we've

193
00:11:40,040 --> 00:11:45,319
Speaker 3: fluctuated back and forth. A little feels like credit remains tight,

194
00:11:45,480 --> 00:11:51,400
Speaker 3: and especially at the lower part of the credit spectrum

195
00:11:51,440 --> 00:11:59,200
Speaker 3: of both consumers, small business and higher rate credits. They're

196
00:11:59,320 --> 00:12:03,520
Speaker 3: getting a squeak and we hear that from our bankers

197
00:12:03,320 --> 00:12:05,800
Speaker 3: as well as from the businesses themselves.

198
00:12:06,400 --> 00:12:08,760
Speaker 2: Austin Goby, thank you very much for joining us.

199
00:12:08,760 --> 00:12:10,920
Speaker 1: We would have called at our age, of course, the

200
00:12:11,520 --> 00:12:13,840
Speaker 1: Journey of the ten year an e ticket ride at

201
00:12:14,160 --> 00:12:17,680
Speaker 1: Disney World, but they don't charge that way anymore.

202
00:12:18,200 --> 00:12:19,559
Speaker 2: Thanks for joining us to.

203
00:12:20,200 --> 00:12:22,480
Speaker 4: It's been a long time great to see again.

204
00:12:22,559 --> 00:12:25,600
Speaker 1: Vichael Austin goes to be the president of the Chicago

205
00:12:25,760 --> 00:12:26,839
Speaker 1: Federal Reserve Bank,